Why Build Decentralized Applications: Understanding Dapps

Updated on April 6th, 2021

The financial sector and overall business environment is built upon a centralized structure that has provided order and standardization to transactions and processes. With a system in place that has worked for decades and maybe even centuries, why would you ever want to change it, especially in terms of adding in decentralized applications (Dapps)?

Yet, that is just what is now happening as the list of benefits associated with a decentralized model continues to grow and as applications appear, including Ethereum.

A white paper on the subject of decentralized applications, also known as dapps, has provided numerous reasons why it makes sense to build them given their ability to be flexible, transparent, and resilient.

What are Dapps?

According to the dapp white paper, for an application to be considered truly decentralized, it has to:

  • Be completely open-source and operate autonomously with no entity in charge of the majority of its currency;
  • Have any protocol changes that are designed to make some overall improvement approved by all its users;
  • Cryptographically store all of its operation data and records in a public blockchain;
  • Use a bitcoin or a currency that is native to its blockchain system so that it can be accessed for use and any future contributions to its value from miners; and
  • Generate tokens, or currency, which follows a standard cryptographic algorithm.

To provide a further picture of dapps, they have been further classified into three types:

  • Type I dapps have their own blockchain. These are know as Bitcoin, Litecoin, and all other “alt coins.”
  • Type II dapps use the blockchain of a Type I dapp, are their own protocols, and have tokens to provide the necessary functionality. The Omni Protocol is an example of a Type II dapp. This type is like a software program.
  • Type III leverage the protocol of a Type II dapp to become their own protocols. They also have their own tokens to generate a use. The SAFE Network uses the Omni Protocol for issuing safecoins that are then used to get distributed file storage. This type is like a specialized type of software that fulfills a unique need or function.

In this way, each type of dapp builds upon the next one for further application.

The Case for Dapps

There are a number of ways that dapps are adding value:

  • It is economizing digital resources, providing ways to monetize what has previously been very difficult to do, especially in terms of things like content and other digital assets. A decentralized application can also provide a competitive pressure that changes the pricing of digital resources for a greater range of values to serve a wider market of users.
  • It is being used to establish consensus through the proof-of-work mechanisms, which is the amount of work that each stakeholder contributes to the dapp’s operation also known as mining, and proof-of-stake mechanisms, which are made in relation to the percent of ownership each stakeholder has in the dapp. Some companies like Peercoin use both mechanisms to establish the consensus to ensure no one takes control over the dapp.
  • It is serving as a mechanism for token distribution through development, fund-raising, and mining. The multiple ways tokens can be distributed offers more flexibility and opportunity than with a centralized system that is controlled essentially by one main institution.
  • It is offering completely new ways and processes to work and conduct transactions. For example, dapps are potentially used to enable embeddable records like smart contracts; fraud prevention through the use of tokens; or the advancement of the function of money like Ethereum is doing by building distributed autonomous corporations (DACs).

Dapps in Action

To further illustrate why dapps should be built, here are some prime examples of decentralized applications. It explains how they are changing the present and future of many industries:

  • The SAFE Network is focused on providing the greatest level of security for all Internet users.
  • Factom is simplifying the process of enhanced big data management recordkeeping.
  • Ethereum has a created a programming language that then allows developers to create their own decentralized applications on the Ethereum blockchain with exciting results that address all types of consumer and business issues.
  • BURST addresses the issues that have made cloud storage expensive and unreliable. Similarly, MaidSafe and StorJ have followed suit with a decentralized data structure for public or private cloud storage.
  • Augur is known as a decentralized prediction market that rewards its users for forecasting events.
  • BlockAuth provides a multi-signature system for sharing private data with third parties.

Build Dapps and They Will Come

This is just a short list of the dapps already at work changing how we work, live and transact. This decentralized environment proves that it can result in more innovation and solutions to long-standing business and consumer issues.

As more applications are developed across a wider industry net, a greater picture will emerge of the robustness of dapps and why so many are so excited about building them.

Chalmers Brown - Former CTO of Due

Chalmers Brown - Former CTO of Due

I'm Chalmers Brown and former CTO of Due. I'm a big fan of technology and building financial products that help people better their lives. I have a passion for financial products that help people. I build complex financial infrastructure protocols that help scale financial companies. They are secure and support millions of customers worldwide.

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